OPFs and farmers at an impasse over the ban on futures contracts on certain agricultural products


The unexpected year-long ban on futures contracts on a host of agricultural commodities has left dozens of agricultural producer organizations (FPOs) at rock bottom. Many OPAs, who had purchased agricultural products from farmers upon initial arrival just after harvest, are in a mess as prices have since fallen and they have not been able to hedge their risk in the markets at term.

Utthan Mustard Producer Company of Bharatpur in Rajasthan has a stock of over 535 quintals of mustard stored in warehouses. He bought these mustards between ₹6,600 and ₹7,000 per quintal upon initial arrival in April. Today, mustard prices hover around ₹6,200 per quintal. About 55-60% of the mustard crop arrives on mandi between March and April.

Rup Singh, CEO, Utthan Mustard said Activity area that he paid a premium of ₹50 per quintal on the then prevailing spot price to support struggling farmers who brought their produce to market immediately after harvest, knowing full well that prices would be under pressure.

This is the first time in the past 12 years that prices have crashed even below the first days of arrival, he added.

Usually, he said, the FPO hedges its risk by taking a sell position in a multi-month contract on NCDEX and depositing the stock in their accredited warehouses, but SEBI banned futures trading last December and most farmers are now at a great loss.

Concerned FPOs

Singh says most of the other FPOs that sell chana and wheat in Rajasthan are also facing the same fate. Attempts to sell the mustard directly to businesses and open markets have resulted in negotiations for a 5-10% discount knowing it is a distress sale, Singh said.

Basant Sharma, a farmer from Bharatpur district, who planted 5 hectares of mustard this season, was holding on to his produce expecting a spike in prices due to Russia’s war on Ukraine.

Previously, farmers used to decide when to sell after looking at the NCDEX price chart displayed on the mandi, but that hasn’t worked lately, he said.

Last October, the government banned futures trading in rapeseed and mustard until further notice, then included RMseed in the list of seven commodities on which futures trading was banned for a year in December.

Bharatpur district, which is the largest mustard producing division, contributes over 48% of Rajasthan’s production. Other major mustard growing districts include Alwar, Sriganganagar, Sawaimadhopur and Jhunjhunu.

In terms of mustard growing area, Rajasthan has a 45% share followed by 12% each in Uttar Pradesh and Madhya Pradesh and Haryana (9%) share the current season.

BV Mehta, executive director of the Solvent Extractors’ Association, said the transparent price discovery mechanism of the futures markets had helped farmers and that the government should heed industry’s demand to lift the ban on extractors. futures contracts on certain products.

India produces about 45% of edible oil for domestic consumption, in which mustard has the highest share of 39%, followed by soybeans (24%) and groundnuts (7%).

Published on

July 12, 2022


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